Purpose vs Profit : Stakeholder Management

The concepts behind stakeholder management seem to be so obvious, yet have been largely ignored for a long time by corporations that are now beginning to see the error of their ways. Taking into account all those that can impact your business as well as those your business impacts would seem to be common sense, if not for a 40-plus-year push from Milton Friedman followers which decided that economic success can only come from focusing on increasing shareholder value above all else. The theory was that, if reaching out to communities, dealing with the media, developing stronger employee relations, and engaging competitors, special interest groups and NGOs would help increase shareholder value, then and only then would it be pursued by the company. Otherwise, if a direct line to profit could not be shown, these relationships were insignificant to the overall directive of increasing profits.

However, corporations are learning the hard way that ignoring their stakeholder relationships is done at their own peril. We’ve seen the backlash Wal-Mart faces from communities that object to the destruction of “Mom and Pop” shops; we’ve seen the backlash against Nike for ignoring the abysmal conditions of their suppliers’ factories; we’ve seen backlash against McDonalds and Burger King for supporting the clear cutting of Amazonian rain forest from their beef suppliers. These companies have responded by altering their practices, improving their CSR reporting, taking more of their stakeholder relationships into account, and have in turn benefited financially by behaving more responsibly. Corporate mass media and the healthcare industry have systemically failed in their respective societal duties due to shifting focus from purpose to profit. News divisions were never originally the revenue generators for networks, so they served their required mission to provide measured and balanced journalism. Now, the 24 hour news cycle and battle for ratings has shifted the information to “infotainment,” complete with punditry, bloviation and speculative “news.” The healthcare industry, driven by insurance and pharmaceutical companies, has fallen even further by focusing on shareholder value over the public service of health maintenance, illness prevention and affordable treatment. In “Managing for Stakeholders“, Freeman, et al. discuss the primary points of stakeholder management, one of which involves the guiding societal purpose of an organization’s product or service. When profit is placed so far above purpose, the organization can lose its purpose and eventually its profits as well. An organization must have guiding principles and continually affirm that it is serving its stated purpose in order to find continual financial success and sustainability. Purpose and profit are not at odds when there is an integrated focus on both.Josh Gelfand is a full time student slated to graduate in May of 2010. Prior to joining the Presidio community he was the General Manager of Flexcar in San Diego

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